Determination of Origin of Textile Goods Processed in Israel

DEPARTMENT OF THE TREASURY

[T.D. 96-58]

Determination of Origin of Textile Goods Processed in Israel

AGENCY: U.S. Customs Service, Department of the Treasury.

ACTION: General statement of policy.

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SUMMARY: This document gives notice of Customs interpretation and

application of section 334(b)(5), Uruguay Round Agreements Act (Pub. L.

103-465), which became effective July 1, 1996. That section excepts

from the rules of origin governing textiles and textile products

established in sections 334(b)(1) through 334(b)(4) goods which, under

rulings and administrative practices in effect immediately before the

enactment of section 334 (December 8, 1994), would have originated in,

or been the growth, product, or manufacture of Israel.

Section 334, and its legislative history, require maintaining the

status quo ante for goods processed in Israel. Accordingly, if, under

the rulings and administrative practices in effect prior to December 8,

1994, a good would have been the growth, product, or manufacture of

Israel, without regard to the applicability of the United States--

Israel Free Trade Agreement, it will continue to be the growth,

product, or manufacture of Israel. If a good would not have been

determined to be the growth, product, or manufacture of Israel under

the rulings and administrative practices in effect prior to December 8,

1994, that determination would still apply to goods processed in Israel

and entered, or withdrawn from warehouse, for consumption on and after

July 1, 1996.

EFFECTIVE DATE: July 1, 1996. This statement of policy shall apply to

goods entered, or withdrawn from warehouse, for consumption, on and

after July 1, 1996.

FOR FURTHER INFORMATION CONTACT: Phil Robins, Office of Regulations and

Rulings, U.S. Customs Service, (202) 482-7029.

SUPPLEMENTARY INFORMATION:

Background

On December 8, 1994, the President signed into law the Uruguay

Round Agreements Act (Pub. L. 103-465). Section 334 of the Act

establishes rules of origin for textiles and textile products. In order

to implement section 334, Customs published a notice of proposed rule

making (60 FR 27378, dated May 23, 1995), and, after receiving comments

thereon, promulgated Sec. 102.21, Customs Regulations (19 CFR 102.21)

(60 FR 46188, dated September 5, 1995).

Section 102.21(a) specifically states that the rules in Sec. 102.21

shall not apply ``for purposes of determining whether goods originate

in Israel or are the growth, product, or manufacture of Israel.'' The

basis for the Israeli exception is section 334(b)(5) of the Uruguay

Round Agreements Act which states:

This section shall not affect, for purposes of the customs laws

and administration of quantitative restrictions, the status of goods

that, under rulings and administrative practices in effect

immediately before the enactment of this Act, would have originated

in, or been the growth, product, or manufacture of, [sic] a country

that is a party to an agreement with the United States establishing

a free trade area, which entered into force before January 1, 1987.

For such purposes, such rulings and administrative practices that

were applied, immediately before the enactment of this Act, to

determine the origin of textile and apparel products covered by such

agreement shall continue to apply after the enactment of this Act,

and on and after the effective date described in subsection (c),

unless such

[[Page 40077]]

rulings and practices are modified by the mutual consent of the

parties to the agreement. (emphasis added)

Israel is the only country which qualifies under the terms of section

334(b)(5).

The rulings and administrative practices in effect prior to

December 8, 1994, were derived from the provisions of Sec. 12.130,

Customs Regulations (19 CFR 12.130). Section 12.130 states that the

country of origin of a good processed in more than one country is the

country in which the last substantial transformation occurs.

Section 334(b)(5) is comprised of two sentences. The first sentence

clearly states that the status of goods shall not be affected if, prior

to December 8, 1994, those goods were considered to originate in

Israel, or were the growth, product, or manufacture of Israel. While

there is reference in that sentence to a free trade agreement, the

language appears to have been carefully structured and contains no

requirement that the goods which are the subject of that exception must

themselves be eligible for duty preference under the terms of the

agreement.

The second sentence elaborates on, and clarifies the wording of the

first sentence. It makes clear that in determining the origin of goods

covered by the agreement, Customs shall continue to apply ``such

rulings and administrative practices that were applied immediately

before the enactment of this Act to determine the origin of textile and

apparel products covered by such agreement.''

Reading the two sentences together, it appears to Customs that

Congress, in enacting section 334(b)(5), intended that Israel maintain

its status quo ante in regard to country of origin determinations for

goods processed in that country.

Section 102.21(a), Customs Regulations, is clear on its face that

the textile origin rules contained in that section will not be applied

to determine whether goods originate in, or are the growth, product, or

manufacture of Israel. Thus, if a good is determined not to be a

product of Israel under the rulings and administrative practices in

effect prior to December 8, 1994, applying the rules in Sec. 102.21

cannot result in Israel being the country of origin of the good.

Example

The following example is set forth to illustrate how this position

will be implemented in the application of the rules contained in

Sec. 102.21:

Fabric produced in country A is cut in country B into components

for a simple shirt. Those components are assembled into the

completed shirt in Israel by sewing. Under the rulings and

administrative practices in effect prior to December 8, 1994, Israel

would not be the country of origin because Customs has a long line

of administrative rulings holding that the cutting of garment

components constitutes a substantial transformation, while the

assembly of those components into a simple garment does not. Since

Israel cannot be the country of origin under the rulings and

administrative practices in effect prior to December 8, 1994,

Customs must apply Sec. 102.21 to determine the proper country of

origin. However, Sec. 102.21(a) precludes a finding that Israel is

the country of origin.

(a) Section 102.21 requires that the General Rules, found in

Sec. 102.21(c), be applied in sequential order. Section 102.21(c)(1)

states that the country of origin of a good is the single country,

territory, or insular possession in which the good was wholly

obtained or produced. Since the shirt in the above example was not

wholly obtained or produced in a single country, that section is not

applicable.

(b) Section 102.21(c)(2) requires that the good comply with the

applicable tariff shift rule in Sec. 102.21(e). The applicable

tariff shift rule for the shirt in the above example is a change to

the heading in which that garment is classified from any other

heading, provided that the change is the result of the garment being

wholly assembled in a single country, territory, or insular

possession. The shirt in the above example meets this requirement

because it was wholly assembled in Israel. However, as noted above,

Sec. 102.21(a) provides that the rules in Sec. 102.21 cannot be used

to determine if goods originate in, or are the growth, product, or

manufacture of Israel. Accordingly, if the application of a rule in

Sec. 102.21 results in Israel being the country of origin of a good,

that result is invalid and Customs will by-pass that rule and

proceed to the next rule in order.

(c) The next two rules were inserted into the general rules as a

precautionary measure in case the tariff shift rules in

Sec. 102.21(e) inadvertently failed to carry out the express

statutory requirements of section 334. Section 102.21(c)(3)(i) is

concerned with knit to shape goods. Since the subject shirt is not

knit to shape, Sec. 102.21(c)(3)(i) is not applicable. Section

102.21(c)(3)(ii) provides that, except for certain goods

classifiable under specifically enumerated tariff provisions, and

except for knit to shape goods, a good is the product of the single

country, territory, or insular possession in which it was assembled.

As in the preceding paragraph, since the application of

Sec. 102.21(c)(3)(ii) would result in Israel being the country of

origin of the shirt, that rule cannot be used to determine the

origin of the good and Customs must proceed to the next rule.

(d) The next two rules, Secs. 102.21(c)(4) and 102.21(c)(5), are

commonly referred to as ``multicountry'' rules. They are designed to

insure that a single country of origin is determinable for each good

imported into the United States. Section 102.21(c)(4) provides that

if a single country of origin cannot be determined by the

application of the preceding rules, then the country of origin of a

good will be the single country, territory, or insular possession in

which the most important assembly or manufacturing process occurred.

In the example, this occurs in Israel, where the garment was wholly

assembled. However, since the application of the rules in

Sec. 102.21 cannot result in Israel being the country of origin,

Customs will determine the origin of the shirt in the example by use

of Sec. 102.21(c)(5), the second (and last) multicountry rule.

(e) Section 102.21(c)(5) provides that if a single country of

origin cannot be determined by any of the preceding rules, the

country of origin will be the last country, territory, or insular

possession in which an important assembly or manufacturing process

occurred. Since (1) every good imported into the United States must

have a country of origin, (2) Sec. 102.21(c)(5) is the last rule

which can be used to determine origin, and (3) the rules in

Sec. 102.21 cannot result in Israel being the country of origin,

Customs believes that, when using Sec. 102.21 to determine the

proper country of origin of goods subjected to an assembly or

manufacturing process in Israel, the process or, processes,

performed in Israel should not be considered. Under the given facts,

Country B is the country of origin because, when excluding the final

assembly operation in Israel, the cutting of the fabric in Country B

is the last important manufacturing process in the production of the

shirt.

Conclusion

After a careful analysis of the clear wording of section 334(c)(5)

of the Uruguay Round Agreements Act and what Customs believes to have

been the intent of Congress in enacting that section, i.e., to maintain

Israel's status quo, and considering the wording of Sec. 102.21(a),

Customs Regulations, which was promulgated pursuant to the authority of

section 334, Customs has concluded that in determining whether goods

originate in, or are the growth, product, or manufacture of Israel,

Customs will first apply the rulings and administrative practices in

effect prior to December 8, 1994. If that determination results in

Israel not being the country of origin of the goods, then Customs will

apply the rules in Sec. 102.21 to determine the country of origin, with

no consideration being given to assembly or manufacturing processes

performed in Israel.

Dated: July 25, 1996.

Stuart P. Seidel,

Assistant Commissioner, Office of Regulations and Rulings.

[FR Doc. 96-19424 Filed 7-30-96; 8:45 am]

BILLING CODE 4820-02-P